As key earnings reports continue to roll in and the Fed decision awaits Wednesday, where do the markets stand?
Thus far, first-quarter earnings have been largely positive. However, the slightest moderation in forward outlooks are being dealt with harshly as are even some of those companies beating consensus estimates.
The valuation gap, which has been our concern, has narrowed but still finds the S&P 500 at a premium to ballpark fair value.
Meanwhile, chart trends for the major equity indexes are now evenly split between neutral and bearish projections.
In our opinion, this action suggests we need further evidence of some stabilization before having confidence in market progress.
Let's break it all down further now.
Index Trends Split Between Neutral & Bearish
Chart Source: Worden
On the charts, all the major equity indexes closed lower Tuesday with negative internals on heavy volume.
While there were no violations of support levels, the Nasdaq 100 (see above) closed below its near-term uptrend line, turning neutral from bullish.
Also, the MidCap 400 and Value Line Arithmetic Index closed back below their downtrend lines, turning bearish as are the Dow Jones Transports and Russell 2000 (see below).
The S&P 500, DJIA and Nasdaq Composite remain neutral.
Cumulative market breadth is still neutral for the All Exchange, NYSE and Nasdaq but has been weakening of late.
Regarding stochastic signals, the S&P and DJIA generated bearish stochastic crossovers.
Chart Source: Bloomberg
Data Remain Neutral
The data dashboard remains largely neutral, including the 1-day McClellan Overbought/Oversold Oscillators (All Exchange: -34.24 NYSE: -47.49 Nasdaq: -26.56).
The percentage of S&P 500 issues trading above their 50-day moving averages (contrarian indicator) stayed neutral, dropping to 46%.
The Open Insider Buy/Sell Ratio rose to 89.0 as insiders became more aggressive on the buy side over the past few sessions. Yet, it remains neutral.
The detrended Rydex Ratio (contrarian indicator) was unchanged at +0.07, also staying neutral.
Last week's AAII Bear/Bull Ratio (contrarian indicator) dropped to 1.21, turning mildly bullish from bullish as crowd fear dissipated.
The Investors Intelligence Bear/Bull Ratio (contrary indicator) is neutral at 51%.
Valuation Gap Narrows but Stays at a Premium
The forward 12-month consensus earnings estimates from Bloomberg for the S&P 500 are still a concern that we cannot ignore. However, it has increased to $219.77 per share. While the valuation gap narrowed with the S&P's forward P/E multiple at 18.6x versus the "rule of 20" ballpark fair value is 16.6x, it is still wide. In our opinion, it remains a reason for remaining vigilant for potential risk elevation.
The S&P's forward earnings yield is 5.33%.
The 10-Year Treasury yield closed lower at 3.44%. It is in a short-term neutral trend. We see support at 3.43% and resistance at 3.6%, by our analysis.
Bottom Line
We have yet to see a shift in the weight of the evidence that would strongly suggest the recent market volatility has abated. While the charts and data are generally neutral, internals market volatility has been increasing within the indexes as well as individual equities. More patience is required.
